Bank of Canada holds interest rate steady, hints at hike

April 17, 2012 - The Bank of Canada is keeping its key overnight interest rate at one per cent, the central bank announced Tuesday, but indicated that rates could be on the rise soon, a move that sent the loonie soaring in morning trading.

The bank has held the trendsetting rate steady since September, 2010. But in its statement Tuesday, the bank suggested that the days of cheap borrowing could be coming to an end.

"In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate," the bank said.

Paul Ferley, the assistant chief economist with RBC, said Tuesday that while the bank seemed to suggest that "their next move is going to be toward higher rates," that may not be for some time yet.

"It's nothing imminent; I mean they're just flagging this possibility," Ferley told CTV News Channel.

"Our view though right now is that it's probably going to be something in 2013 rather than rates going up this year."

But Capital Economics analyst David Madani said the warning about a pending rate hike may be nothing more than smoke and mirrors, as Bank governor Mark Carney tries to dissuade Canadians from taking on more debt.

"If the bank did actually raise rates, we suspect that it would have to reverse course again pretty quickly as the housing market slumped," Madani told The Canadian Press.

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Marlene Ofter

Marlene Ofter

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